Health Care and the Supply Chain: What To Do When Your Customer is Sybil

Every supply chain is actually several concurrent chains. The physical supply chain is the path that materials take on their journey from raw materials to finished goods to consumption. The financial supply chain is the path that money created or required for each physical move traverses. Other paths may include value, a transfer of equivalent financial value from one physical materials owner to another. Fortunately in most supply chains the materials, money and value travel in parallel with the identities and roles of the participants clearly defined. And in most supply chains it is not difficult to identify the customer. This is not the case with health care.

The health care supply chain is exceedingly complex and suffers from multiple personalities. Let's say your company manufactures stents, little devices that are inserted to open blocked blood vessels and you want to sell them. They are effective products so it should not be a problem, right? Wrong. The first challenge is deciding who the customer is. Is it the patient who will be helped by it? Is it the doctor who will decide which stent to use and who will insert it? Is it the hospital who will buy it? Is it the insurance company who will pay both the hospital and the doctor or is it the Federal Government whose FDA will have had to approve the product for sale or CMS who will determine if the FDA approved product will be paid for by Medicare or Medicaid? Depending on the product, the nature of the relationship between the doctor and the hospital, what portion the patient may have to pay out of pocket and the relationship between the insurance company and the hospital and the decision by CMS to pay for or not pay for the product, the answer could well be “all of the above”.

Many suppliers are forced to market and sell their product on so many different levels that its like dealing with a customer who has multiple personality disorder. And having to sell to each of those entities dramatically increases the cost of the product. One example of this is that until several years ago the main sales target of orthopedic suppliers was the orthopedic surgeon. Then companies started advertising replacement joints on television in an effort to recruit patients to assist them in persuading the surgeons on which product to choose.

One of the things we could do to curb these added costs would be to make determinations about who the real customers are and allow suppliers to narrow the focus and reduce the cost of their sales efforts.

Is your organization or someone you know looking for a procurement leader or consultant with a deep understanding of the health care industry? If so, please send an email to: leverard (at) bellsouth (dot) net

Lynn James Everard

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